AOL's dirty little business plan: Dial-up for dollars

AOL had its best quarter in 8 years -- on the back of aging subscribers who don't know they can leave the service

Happy days are here again at AOL, which just reported its first quarter of revenue growth in eight years. To put that into perspective, the last time AOL made money, George W. Bush had just been reelected, Facebook had just launched, Google was still considered a search company, YouTube didn't exist, and Lindsay Lohan had yet to enter rehab.

As Business Insider's Henry Blodget points out, though, a huge chunk of AOL's revenue came from -- you guessed it -- dial-up subscribers. Last year, those monthly fees accounted for more than $700 million of AOL's $2.2 billion of revenue.

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AOL subscriptions actually declined 10 percent from last year, due most likely to natural causes. Still, as Boy Genius Report's Brad Reed so eloquently puts it, some 3 million souls are still trapped in AOL dial-up hell, paying out up to $27.99 a month for the privilege of hearing voice actor Elwood Edwards cry out, "You've got mail!"

A January 2011 New Yorker profile of AOL jefe Tim Armstrong reveals the company's "dirty little secret": According to a former AOL executive, some 75 percent of those aging AOL subscribers already get Internet access from DSL or cable and don't realize they no longer need to pony up every month to keep their email address alive.

Hear that loud screeching noise in the background? That's the sound of 3 million 56k modems crying out for justice.

The biggest part of AOL's income stream is of course advertising; AOL owns the fourth-largest ad network on the Net, according to ComScore, followed by its "brand group" properties, such as Huffington Post, TechCrunch, Engadget, and supermodel Heidi Klum, among others. (Did you know Heidi Klum was owned by AOL? That's so depressing. No wonder Seal dumped her.)

But nothing is as profitable as AOL dial-up. All told, Huffpo, TechCrunch, et al. brought in a measly $9 million in profit in Q4 2012, down from $13 million the year before. Dial-up profit over the same period: $159 million.

See? Turns out that ripping off octogenarians is a viable business model after all. AOL should capitalize on this while it still can. I mean, these people aren't going to live forever. Their pensions will run out eventually. Then what will AOL use to prop up its quarterly numbers?

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